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[Federal Register Volume 89, Number 246 (Monday, December 23, 2024)]
[Notices]
[Pages 104582-104584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30527]

[[Page 104582]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101949; File No. SR-NSCC-2024-011]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Modify Addendum A (Fee Structure)

December 17, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 9, 2024, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the clearing agency. 
NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    NSCC is filing the proposed rule change to modify Addendum A (Fee 
Structure) (``Addendum A'') of NSCC's Rules & Procedures (``Rules'') to 
modify the Clearing Fund Maintenance Fee, as described below.\5\
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    \5\ Capitalized terms not defined herein are defined in the 
Rules, available at www.dtcc.com/legal/rules-and-procedures.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend Addendum A 
(Fee Structure) of the Rules to modify NSCC's Clearing Fund Maintenance 
Fee effective January 1, 2025. The proposed fee change is discussed in 
detail below.
Background
    NSCC's Clearing Fund Maintenance Fee was implemented in 2016 in 
order to (i) diversify NSCC's revenue sources, mitigating NSCC's 
dependence on revenues driven by trading volumes and (ii) add a stable 
revenue source that would contribute to NSCC's operating margin by 
offsetting increasing costs and expenses.\6\ The fee is charged to all 
NSCC Members that are required to make deposits to the NSCC Clearing 
Fund in proportion to the Member's average monthly cash deposit to the 
Clearing Fund.
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    \6\ See Securities Exchange Act Release No. 78525 (Aug. 9, 
2016), 81 FR 54146 (Aug. 15, 2016) (SR-NSCC-2016-002).
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    In June 2022, NSCC launched its Securities Financing Transaction 
(``SFT'') clearing service.\7\ The SFT clearing service provides 
central clearing for SFTs, which are, broadly speaking, transactions 
where members borrow or lend eligible securities versus cash and 
simultaneously agree to exchange the same securities and cash, plus or 
minus a rate payment, on a future date. NSCC novates the on leg of SFT 
trades as a central counterparty and risk manages the outstanding SFTs 
through maturity. The SFT clearing service allows Members to clear SFTs 
for their own proprietary accounts and established new membership 
categories and account types for Sponsoring Members, Sponsored Members 
and Agent Clearing Members.\8\
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    \7\ See Securities Exchange Act Release No. 95011 (May 31, 
2022), 87 FR 34339 (June 6, 2022) (SR-NSCC-2022-003) (Order 
Approving Proposed Rule Change to Introduce Central Clearing for 
Securities Financing Transaction Clearing Service). NSCC also filed 
the proposal as advance notice SR-NSCC-2022-801. See Securities 
Exchange Act Release No. 94998 (May 27, 2022), 87 FR 33528 (June 2, 
2022) (SR-NSCC-2022-801) (Notice of No Objection to Advance Notice 
to Introduce Central Clearing for Securities Financing Transaction 
Clearing Service).
    \8\ See NSCC Rule 2C for Sponsoring Member and Sponsored Member 
requirements and NSCC Rule 2D for Agent Clearing Member 
requirements, supra note 5.
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    SFT Members are required to make contributions to the Clearing Fund 
(``Required Fund Deposits'') \9\ for each applicable SFT Account \10\ 
that they maintain for the SFT Clearing Service.\11\ The cash deposits 
made to satisfy Required Fund Deposits for SFT Accounts are currently 
subject to the Clearing Fund Maintenance Fee. SFT Members also pay 
Trade Clearance Fees that include: (i) a fee of $1.00 per side of each 
new SFT submitted (excluding any Linked SFT and Sponsored Member 
Transactions) and (ii) a fee of $0.14 per million of outstanding SFT 
notional balance.\12\
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    \9\ Required Fund Deposit is generally defined to include the 
Sponsoring Member Required Fund Deposit, the Agent Clearing Member 
Required Fund Deposit and the Required SFT Deposit. See definition 
of Required Fund Deposit in Rule 1, supra note 5.
    \10\ SFT Account is defined to include an SFT Member's SFT 
Account for proprietary activity as well as any Agent Clearing 
Member Customer Omnibus Account and any Sponsored Member Sub-
Account. See definition of SFT Account in Rule 1, supra note 5.
    \11\ See Section 12 of NSCC Rule 56 for Required SFT Deposit 
generally, Section 7 of NSCC Rule 2C for Sponsoring Member Required 
Fund Deposit, and Section 6 of NSCC Rule 2D for Agent Clearing 
Member Required Fund Deposit, supra note 5.
    \12\ See Section II.A.2. of Addendum A of the NSCC Rules, supra 
note 5.
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Proposed Fee Change
    Pursuant to Section V.F of Addendum A, NSCC charges a Clearing Fund 
Maintenance Fee, which is a monthly fee calculated, in arrears, as the 
product of (A) 0.35% and (B) the average of each Member's cash deposit 
balance in the Clearing Fund, as of the end of each day, for the month, 
multiplied by the number of days for that month and divided by 360.
    NSCC has evaluated the application of the Clearing Fund Maintenance 
Fee to cash deposits in SFT Accounts and determined to exclude SFT 
Accounts from the Clearing Fund Maintenance Fee. In the current 
bilateral market for this activity, which is not cleared, SFTs are 
generally subject to standard haircuts regardless of the instrument or 
its volatility. In the NSCC SFT clearing service, NSCC utilizes a 
Value-at-Risk (``VaR'') model designed to specifically manage the 
market and volatility risk of the underlying assets. NSCC's VaR charge 
for SFTs is typically greater than the standard haircut generally used 
in the bilateral market and therefore raises the costs of clearing such 
activity. Specifically, the margin requirements associated with SFTs in 
the SFT clearing service increase the amount of capital necessary to 
participate in the service. SFT Member profit margins are traditionally 
slim as lenders must pass a large portion of their profits back to the 
beneficial owners of the underlying securities. The additional 35 basis 
point fee charged via the NSCC Clearance Fund Maintenance Fee may 
therefore create a negative return for certain

[[Page 104583]]

Members attempting to use the SFT clearing service and may also serve 
to discourage broader participation, volumes, and liquidity in the SFT 
clearing service. NSCC also notes that SFTs are currently subject to 
Trade Clearance Fees that include: (i) a fee of $1.00 per side of each 
new SFT submitted (excluding any Linked SFT and Sponsored Member 
Transactions) and (ii) a fee of $0.14 per million of outstanding SFT 
notional balance, which are intended to cover the necessary costs of 
maintaining the service.\13\
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    \13\ NSCC's fees are cost-based plus a markup as approved by the 
Board of Directors or management (pursuant to authority delegated by 
the Board), as applicable. This markup is applied to recover 
development costs and operating expenses and to accumulate capital 
sufficient to meet regulatory and economic requirements. NSCC 
maintains procedures to control costs and regularly review pricing 
levels against costs of operation. See NSCC Disclosure Framework for 
Covered Clearing Agencies and Financial Market Infrastructures, 
available at www.dtcc.com/legal/policy-and-compliance.
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    To effectuate the proposed fee change, NSCC would amend Section 
V.F. of Addendum A concerning the Clearing Fund Maintenance Fee by 
inserting a parenthetical statement to clarify that the calculation of 
the average of each Member's cash deposit balance in the Clearing Fund 
would exclude cash deposit balances in any SFT Accounts.
Expected Impact
    The proposed fee change would have a minimal impact on Members and 
on NSCC's overall revenues. Based on an analysis of NSCC's SFT Account 
cash deposits and year-to-date revenues, the impact of the proposed fee 
change would be significantly less than one percent of NSCC's overall 
revenues and would result in only slightly lower Clearing Fund 
Maintenance Fees for NSCC Members participating in the SFT clearing 
service.
Member Outreach
    NSCC will perform outreach to those Members with SFT Accounts to 
notify them of the change. The Commission will be notified of any 
written comments received.
Implementation Timeframe
    NSCC would implement this proposal on January 1, 2025. As proposed, 
a legend would be added to Addendum A stating there are changes that 
became effective upon filing with the Commission but have not yet been 
implemented. The proposed legend also would include the date on which 
such changes would be implemented and the file number of this proposal, 
and state that, once this proposal is implemented, the legend would 
automatically be removed.
2. Statutory Basis
    NSCC believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. Specifically, NSCC believes 
the proposed rule change is consistent with Section 17A(b)(3)(D) of the 
Act \14\ and Rule 17ad-22(e)(23)(ii) \15\ thereunder for the reasons 
set forth below.
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    \14\ 15 U.S.C. 78q-1(b)(3)(D).
    \15\ 17 CFR 240.17ad-22(e)(23)(ii).
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    Section 17A(b)(3)(D) of the Act \16\ requires that the rules of a 
clearing agency provide for the equitable allocation of reasonable 
dues, fees, and other charges among its participants. NSCC believes the 
proposed fee change is reasonable and would be allocated equitably 
among its full-service Members. Members participating in the SFT 
clearing service are already subject to the Clearance Fund Maintenance 
Fee for all cash balances in their primary full-service accounts, which 
constitute the vast majority of NSCC's Clearing Fund cash balances, 
similar to all other full-service Members. Moreover, the SFT Trade 
Clearance Fees, and not the Clearance Fund Maintenance Fee, are 
primarily intended to cover the costs of maintaining the SFT clearing 
service. Any Member that wishes to join the SFT clearing service in the 
future would receive the same treatment on their SFT Account cash 
balances. As a result, NSCC believes the proposed change to the 
Clearing Fund Maintenance Fee is equitable.
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    \16\ 15 U.S.C. 78q-1(b)(3)(D).
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    NSCC also believes that the proposed change to the Clearing Fund 
Maintenance Fee is reasonable. As described above, the application of 
the Clearance Fund Maintenance Fee can create negative returns for 
certain Members attempting to use the SFT clearing service and may also 
serve to discourage broader participation, volumes, and liquidity in 
the SFT clearing service. Moreover, as noted above, the Trade Clearance 
Fees, and not the Clearance Fund Maintenance Fee, are primarily 
intended to cover the cost of the SFT clearing service. Additionally, 
Members participating in the SFT clearing service are already subject 
to the Clearance Fund Maintenance Fee for all cash balances in their 
primary full-service accounts, similar to all other full-service 
Members. The proposed change is designed to reduce economic burdens on 
SFT clearing and promote greater access to the service for NSCC's 
Members. For this reason, NSCC believes the proposed change to the 
Clearing Fund Maintenance Fee is reasonable.
    Rule 17ad-22(e)(23)(ii) under the Act \17\ requires NSCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide sufficient information to 
enable participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency. The proposed fees would be clearly and transparently published 
in Addendum A of the Rules, which are available on a public 
website,\18\ thereby enabling Members to identify the fees and costs 
associated with participating in NSCC. As such, NSCC believes the 
proposed rule change is consistent with Rule 17ad-22(e)(23)(ii) under 
the Act.\19\
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    \17\ 17 CFR 240.17ad-22(e)(23)(ii).
    \18\ See supra note 5.
    \19\ 17 CFR 240.17ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \20\ requires that the rules of the 
clearing agency do not impose any burden on competition not necessary 
or appropriate in furtherance of the Act. NSCC does not believe that 
the proposed change to the Clearing Fund Maintenance Fee would impose 
any burden on competition. The proposed rule change would result in a 
reduction of fees to Members using NSCC's SFT clearing service and 
would apply to any Member using or desiring the use the SFT clearing 
service. NSCC believes the proposed fee change would not unfairly 
inhibit access to NSCC's services by any Member, and in fact, is 
designed to reduce burdens on SFT clearing and promote greater access 
to the service for NSCC's Members. NSCC therefore believes the proposed 
rule change would have a minimal impact on Members and would not impose 
any burden on competition.
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    \20\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has conducted outreach to Members to provide them with notice 
of the proposed fees.
    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, NSCC will amend 
this filing to

[[Page 104584]]

publicly file such comments as an Exhibit 2 to this filing, as required 
by Form 19b-4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding 
the rule filing process or logistical questions regarding this filing 
should be directed to the Main Office of the Commission's Division of 
Trading and Markets at [email protected] or 202-551-5777.
    NSCC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \21\ of the Act and paragraph (f) \22\ of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2024-011 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-NSCC-2024-011. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of NSCC and on DTCC's website 
(www.dtcc.com/legal/sec-rule-filings). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-NSCC-2024-011 and should be submitted on or 
before January 13, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-30527 Filed 12-20-24; 8:45 am]
BILLING CODE 8011-01-P
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